5 Small Caps With Big Dividends and Strong Inside Ownership

 |  Includes: AHC, AP, ELRC, KCLI, ODC
by: Alan Brochstein, CFA

There is a lot of focus these days on stocks with high dividends, and rightly so considering the alternatives. Many investors seeking high-yielding stocks limit themselves to larger, well-known companies in the belief that they are somehow "safer" than smaller companies. It would seem that the experiences of 2008 and 2009 would negate that preference - anyone remember the high yields of the banks and companies like GE?

There are many metrics we can use to minimize the risk of getting our dividends slashed, including strong balance sheets and low payout ratios. Another one that I like to see is high inside ownership, as "principals" are less likely to cut the dividend (and to pull cash out of their own wallets) than "agents". With that in mind, I ran a screen of smaller companies with positive attributes. Here is what I did:

  • Market Cap: $100mm-$1bln
  • EV/EBITDA < 8
  • Dividend Yield > 3%
  • Payout ratio < 80%
  • Net Debt to Capital < 20%
  • Inside Ownership > 10%

Here are the 5 companies that made the cut:

click to enlarge
Click to enlarge

  1. Electro Rent (NASDAQ:ELRC) buys test and measurement instruments from companies like Agilent and Tektronix (part of Danaher). It is growing, and it has over $1 per share in net cash. Insiders own almost 22%, while T. Rowe and DFA own another 24%.
  2. Kansas City Life Insurance (NASDAQ:KCLI) has 60% insider ownership. The company has paid the same dividend for almost a decade. This one is cheap, but it has been so for years.
  3. A.H. Belo (NYSE:AHC) appears to be in decline. The newspaper has B-shares that have 10 votes per share (and, thus, control of the company). Insiders own 13.6% (combined A and B).
  4. Ampco-Pittsburgh (NYSE:AP) has been a value stock forever. Insiders own 17% and so does Gabelli Funds. Four other investment advisors own a combined 39%. That doesn't leave a lot for other investors to buy!
  5. Oil-Dri (NYSE:ODC), best known as a cat litter manufacturer (some has to do it!), is a "high and to the right" chart - not bad. The earnings have been relatively flat recently but have almost doubled over the past 5 years. Insiders control the company with voting stock and have substantial exposure. One yellow flag is that the CFO departed abruptly earlier this year.

I don't know any of these companies that well, so please make sure you do your own thorough investigation before buying any of these.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.